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by: Anna Tokmakoff

June 14, 2002 London (MT~Wire) On June 11 and 12 of this year Natasha Gurfinkel-Kagalovsky, former head of the Bank of New York’s Eastern European Division was questioned under oath in London by the plaintiffs' attorneys, pursuant to the order of the Supreme Court of New York County.  This is the first time, since BONY money laundering scandal broke in September 1999, Ms. Kagalovsky, 48, was formally questioned in legal proceedings regarding her involvement in the alleged money laundering through BONY.

The lawsuit stems from the 1999 scandal, involving another former BoNY executive, Lucy Edwards, and her husband, Peter Berlin, who moved billions of dollars from Russia through BoNY accounts. Both pleaded guilty to a variety of federal criminal charges, including money laundering. Prosecutors say that from 1995 until 1999, $7 billion was transferred through the bank's accounts from Russia. Ms. Kagalovsky, Edward’s former boss, denied any involvement in her subordinate’s crimes.

The lawsuit alleges that Bank of New York, primary US correspondent of a now defunct Russian bank Inkombank, aided and abetted Inkombank in defrauding investors out of US$ 40 million. Inkombank, once one of the largest privately owned Russian banks collapsed in 1998, amidst revelations of massive fraud, organized crime ties, involvement in drug trafficking and other crimes. The Bank of New York concealed Inkombank wrongdoing and persuaded the plaintiffs not to withdraw their investment, the lawsuit alleges. BoNY denies any wrongdoing.

Edwards was subpoenaed and testified in the lawsuit, but asserted her Fifth Amendment rights with respect to nearly every question.

$5 million dollars, subject to “cooperation” in BoNY lawsuits

Kagalovsky, who was suspended and subsequently resigned because of the scandal, sued BoNY in Moscow Court in February, 2000. Kagalovsky alleged that BoNY wrongly suspended and libeled her in connection with an international money-laundering investigation in order “to cover up for the bank’s employees of American origin” who were truly involved in the questioned activity. Seeking $270 million in damages, the lawsuit also named as defendants BoNY’s three top BoNY executives, Thomas A. Renyi, CEO, Alan R. Griffith, vice chairman for international operations; and Charles E. Rappold II, chief administrative officer.

At a press-conference in Moscow Kagalovsky said that she had been unfairly singled out because of her Russian origins and in order to distract attention from "serious problems in other parts of the bank."

Kagalovsky's lawyer, Stanley Arkin, said at the time that she was also considering filing additional suits in the U.S. and UK. But a spokesman for the Bank of New York said at that time that the Kagalovsky lawsuit was "a nuisance and entirely without foundation."

In September of 2001, Russian court threw out the case against BoNY executives on jurisdictional grounds.

But in November of 2001, BoNY suddenly decided to settle the suit for nearly $5 million, including $300,000 legal fees to Kagalovsky’s lawyers. The number is shocking, considering that Russian courts rarely if ever awarded more than a few hundred dollars + apology in libel cases.

Settlement agreement between Kagalovsky and her former employer has been kept secret. But sources familiar with various litigations against BoNY in New York said that BoNY desperately needs Kagalovsky’s cooperation to controvert  mounting evidence of corruption in the bank uncovered in the litigations.

Agreement provides that Kagalovsky receives half of the money upon signing and the other half in July of this year, provided however that she co-operates with BoNY in current and future criminal investigations and civil lawsuits and will provide testimony and appear for depositions at BoNY’s calling.

Did BoNY get its money’s worth?

At her deposition in London, Kagalovsky vigorously denied hers and BoNY’s involvement in fraudulent activity alleged by plaintiffs, labeling evidence of BoNY’s corruption a “fabrication” and testimonies of numerous witnesses “lies.” Kagalovsky is BoNY’s only witness capable of controverting massive evidence of fraud assembled by plaintiffs, a source close to the lawsuit said.

But questioned by the plaintiffs’ lawyers during the first day of deposition, Kagalovsky was much less assertive, responding to most questions “I don’t recall.”  She had difficulties recalling her own letters and memos explaining that "when you are a big boss [as she was], you can make your deputy to write a letter from your name to someone else." In the first day of the questioning, Kagalovsky could not even point out to any allegations in the plaintiffs' complaint that she felt were untrue.

Altogether, Ms. Kagalovsky responded to questions with statements "I don't recal" or "I don't remember" approximately 170 times. 

Overnight however her memory returned and next morning BoNY got its monies worth. “Is this a fabrication?” demanded Richard Klapper, BoNY lawyer of the New York based Sullivan & Cromwell, referring to plaintiffs’ evidence. “It is!” Kagalovsky dutifully responded to nearly each such question “it is most likely a fabrication!"

it is a fabrication!” Kagalovsky also denied knowing or “could not recall” any of the eyewitnesses who testified about her wrongdoing in prior proceedings.

Natasha Kagalovsky

Kagalovsky appeared at London deposition accompanied by her own private lawyer Jeffrey Kaplan of a New York based Arkin Kaplan & Cohen LLP. Mr. Kaplan is said to have been utterly hostile to plaintiffs attorneys during the deposition often instructing Ms. Kagalovsky not to answer their questions.

Upon completion of the second day of the deposition, BoNY’s lawyers wrote a letter to court’s Special Referee, requesting an order sealing Ms. Kagalovsky’s testimony and evidence presented at her deposition. Lawyers argued that in the absence of this order this material may be used "to harass Ms. Kagalovsky." This concern for the BoNY's recent court opponent  appears especially laudable given that Ms. Kagalovsky testified that she still believes that BoNY intentionally libeled her and portrayed her in negative light with the media.

Did BoNY’s former executives help Inkombank defraud investors?

The focal issue of the lawsuit is whether Kagalovsky and Edwards improperly used BoNY’s stature in convincing Inkombank shareholders to leave their $40 million investment intact, knowing that Inkombank was linked to Russian organized crime and was headed for insolvency and liquidation. Kagalovsky denies role in persuading anybody regarding Inkombank. Edwards hides behind the Fifth Amendment.

However in summer of 1996, Edwards met with plaintiffs’ representatives specifically to assuage their worries about Inkombank. Edwards forcefully and articulately explained that Inkombank is “under protection” of BoNY and BoNY would never let it fail. Edwards also vouched for Inkombank’s stability and said that based upon BoNY's "insides" investors’ stock would “triple in value” in the next two years. She also confided in them that she and other BoNY executieves owned  Inkombank shares. 

In reality two years later Russian authorities revoked Inkombank’s license for unlawful activity. Several months thereafter it was on its way to bankruptcy and liquidation.

Kagalovsky was never charged and resides in luxurious limestone in a fashionable area of London.

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